First BanCorp. 2026 Q3 Earnings Call

Thank you, Christine. Good morning, everyone. Thank you for joining First BanCorp's conference call and webcast to discuss the company's financial results for the third quarter of 2026. I am here with Aurelio Alemán, President and Chief Executive Officer, and Said Ortiz, Chief Financial Officer. Before we begin today's call, it is my responsibility to inform you that this call may involve certain forward-looking statements such as projections of revenue, earnings, and capital structure, as well as statements on the plans and objectives of the company's business. The company's actual results could differ materially from the forward-looking statements made due to the important factors described in the company's latest SEC filings. The company assumes no obligation to update any forward-looking statements made during the call. If anyone does not already have a copy of the webcast presentation or press release, you can access them at our website at fbpinvestor.com.

At this time, I would like to turn the call over to our CEO, Aurelio Alemán.

Thank you, Ramón, and good morning, everyone. Well, we delivered another quarter of strong, consistent performance supported by healthy balancing trends in both deposits and loans, stable credit quality, and continued profitability. Net income totaled $96.1 million, or $0.63 per share, essentially unchanged from last quarter. While year-to-date earnings per share actually increased 14% compared to the same period last year. Our franchise continued to generate attractive returns with return on assets of 1.98%, marking actually our 19 consecutive quarters above 1.5%. While margin was somewhat noisy during the quarter, the comparison is impacted by events of the second quarter purchase discount and deferred fees acceleration that were recognized in that quarter.

In addition to an increasingly volatile rate environment which negatively impacted funding costs, which actually happened ahead of loan repricing, which took place after the Fed revised rates and for some of the commercial loans, it takes place at the beginning of each quarter. Even when accounting for these factors, our margin remained among the strongest in the industry. Loan growth was broad-based across our market, but particularly within the commercial segment, with total loans increasing at a 3.3% annualized linked quarter rate. Consumer loans actually declined a bit as we have forecasted. And good to say that deposits remain stable and were supported by growth in core customer balance of $120 million. Credit metrics remain healthy with the NPA ratio unchanged at 0.59 basis points.

Importantly, we continue to return substantial capital to shareholders through both repurchases and dividends while maintaining a CET1 ratio of 16.9%, providing significant flexibility to support opportunities and future capital deployment initiatives. As we disclosed yesterday in a separate press release, we are very pleased that our board approved a 25% increase on our quarterly common dividend and a $350 million stock buyback authorization. Our capital allocation priorities remain unchanged. Given the strength of the balance sheet and capital position, we saw an opportunity to increase capital returns while continuing to support our customers, invest in the franchise, and maintain a prudent capital cushion. We expect share repurchase to remain an important tool, particularly when market valuations create compelling opportunities. Overall, we believe that we are demonstrating the resilience and earning power of our franchise. Please let us move to slide 5.

Stepping back from the quarter, the broader operating environment remains, I would say, stable and supportive. Puerto Rico economy continue to show resilience supported by ongoing reconstruction activity, steady unemployment conditions, and encouraging manufacturing and reshoring announcements. Against the backdrop, we continue to see healthy client activity and constructive business pipelines into the fourth quarter. This quarter, we continue advancing our multi-channel strategy. We opened a new branch in the San Germán area where there was only one bank present. And we continue to expand digital tools that provide faster and more efficient seamless service experience. This commitment to innovation is being recognized by gaining multiple recognitions, one by Global Finance, which named us the best digital user experience in Latin America and Puerto Rico, and the best digital banking app in Puerto Rico.

In addition, Forbes included our company among the world's top-performing banks in 2026, making our highest ranking yet and the first position among our Puerto Rico peers. Again, we are very proud of these recognitions, which reflect our associates' hard work and dedication to delivering the best digital experience for our clients while sustaining a strong and profitable franchise. The combination of these achievements, the asset quality, significant excess capital, position us well to continue executing on our priorities, creating long-term value for our shareholders. Before I turn over the call to Said, I would like to provide some additional context on our key performance indicators and outlook for the remainder of the year, only one quarter away. Please, let us move to slide 6. Looking at the priority, we believe we remain on track of the beginning of the year operating metrics.

Loan growth trends have continued to improve by strong origination and healthy pipeline. We remain confident that we can achieve the lower end of our 3%-5% guidance with what we see going on this quarter. Efficiency remain ahead of target. Year-to-date margin performer remain consistent with our expectation. We do expect to close $50 million more in buybacks during this fourth quarter. Asset quality remains stable, and we continue to warrant growth and discipline on the underwriting, we believe is the prudent thing to do with all the noise that we see in the global macros. As we move to the final quarter, priorities remain clear. Selective grow market share, maintain strong profitability, drive operating leverage, and continue enhancing the customer experience through technology and AI. As always, I thank you for your interest for bank, I look forward to answer your questions.

Now, I'll turn the call over to Said to discuss quarterly results in more detail.

Thank you. Thanks, Aurelio, and good morning, everyone.

Turning to our results. Net income for the quarter was $96.1 million, essentially flat relatively to the second quarter. Lower provision expense and income taxes largely offset softer net interest income, lower non-interest income, and higher operating expenses. Net interest income declined by approximately $1.6 million, while non-interest income decreased by $3.1 million. Provision expense improved by $2.7 million, reflecting continued favorable credit performance. Non-interest expenses increased by approximately $2.9 million, primarily due to a contingency reserve that I will discuss in more detail later. Earning per share increased to $0.63 per share, benefiting from ongoing share repurchase activities. We also generated adjusted pre-tax pre-provision income of approximately $130 million during the quarter. At the same time, unrealized losses in the securities portfolio continue to affect tangible book value through AOCL.

For the quarter, tangible book value was $12.15, and tangible common equity was 9.55%. Excluding the impact of the unrealized losses, adjusted tangible book value per share was $15.34, and adjusted tangible common equity was 11.76%, highlighting the underlying strength of our capital position. Moving on to slide 9 to discuss NII and the margin in detail. Net interest income was $227.5 million, down from the prior quarter. The primary drivers were the absence of approximately $3.4 million of purchase discounts and deferred fee accelerations recognized last quarter, along with higher funding costs. The quarter did have an additional day, excluding the impact of the additional day, which is about $1.3 million and the $3.4 million I just mentioned, net interest income increased by $500,000. The increase in NII came from growth in the commercial and construction balances, coupled with the securities portfolio reinvestment activity.

Net interest margin was 4.73%, declining 14 basis points from the second quarter. Roughly half of the decline reflects the previously disclosed one-time items recognized in the prior quarter, while the remaining decline was largely driven by higher funding costs, primarily driven by a changing mix to higher interest-bearing products such as time deposits and higher rates on government market-linked accounts. Despite continued competition for deposits and a volatile rate environment, our funding profile remains a key strength, and we continue to manage pricing with a disciplined approach focused on relationship, value, and profitability. At 4.73%, our margin remains at an attractive level and continues to compare favorably with peers. Looking ahead, we expect for core margin to remain near current quarter levels during the fourth quarter.

We expect continued deposit competition and loan pricing dynamics to remain headwinds while our investment portfolio repricing opportunity, which for the fourth quarter are approximately $252 million at an average yield of 2.23%, coupled with floating loan portfolio repricing, should provide support if rates continue to move higher as expected. In terms of 2027, we are monitoring certain factors, including inflationary pressures and the overall rate environment. Consequently, we will provide an updated forecast on our next earnings call. Shifting to other income and operating expenses on slide 10. Non-interest income totaled $32.6 million. The decline was primarily driven by lower gains on purchase tax credit, as well as a gain on sale of a Florida fixed asset that benefited the second quarter. Excluding those items, non-interest income remained generally stable. Non-interest expenses totaled $130.2 million.